BOUYGES S. A. AND OTHERS v. RED SEA INSURANCE COMPANY LIMITED

No. 124 of 1997

(Civil)

IN THE COURT OF APPEAL

(On appeal from High Court Action No. 2181 of 1989)

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R E A S O N S  F O R  J U D G M E N T

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Wong J. :-

1. Having heard the submissions, we dismissed the appeal and ordered that the plaintiffs were to have their costs of the appeal.

2. This case has a chequered history. It has been before masters, single judges of the High Court many times, the Privy Council once and this is the second time it comes before this Court, all of which have occurred during interlocutory stages. The appeal to the Privy Council was heard in January and judgment was delivered in July and that is some six months later. It is not in dispute that the full facts are extremely lengthy and complex and for present purposes I can do no better than to reproduce a short passage of the judgment of Lord Slynn in the appeal in Red Sea Insurance Co. Ltd. v. Bouyges S. A. and Others [1995] 1 A.C. 190 which concerns the Court of Appeal upholding the order of Jones J. to strike out what is described as the "direct claim" in the counterclaim. At pp. 194 and 195, Lord Slynn said:-

"The defendant in this case is an insurance company incorporated in Hong Kong but having its head office in Jeddah, Saudi Arabia. The first to third plaintiffs, as parties to a joint venture, were employed by the Government of Saudi Arabia to carry out as main contractors construction work at the University of Riyadh. The fourth to thirteenth plaintiffs, a consortium knows as "P.C.G.", supplied precast concrete prime building units required for the project. The fourteenth to seventeenth plaintiffs together with a firm comprising the eighteenth to twenty third plaintiffs form a consortium known as the "HOK +4 consortium" which acted as architectural and engineering design consultants. The plaintiffs began proceedings against the defendant claiming, under the terms of an insurance policy issued by the defendant, to be indemnified for loss and expense incurred in repairing or replacing structural damage which occurred in the buildings constructed."

3. The insurance policy was issued on 31^st December 1981 and damage to works was first discovered in May 1983 and further damage was discovered in the months of June and November. In the meantime, letters of demand were sent to the defendant by the plaintiffs and loss adjusters were appointed. There were meetings between the parties and their advisers. On 19^th March 1986, proceedings were commenced before the Saudi Arabian Tribunal, the Board of Grievances which were settled or concluded on 27^th April 1988. The sequence of events was set out in a comprehensive chronology prepared by the parties. In so far as this appeal is concerned, I need only start from 28^th April 1989 when a general endorsed writ was issued. A statement of claim was filed and served on 19^th April 1990. This was followed by defence and counterclaim and request for further and better particulars of the statement of claim. Then came the reply to defence and counterclaim and further request for further and better particulars of the statement of claim. Pleadings were closed on 11^th April 1991. On the application by the plaintiffs, Jones J. ordered the defendant's counterclaim to be struck out. An appeal against the order of Jones J. was lodged to the Court of Appeal and finally to the Privy Council which delivered judgment on 18^th July 1994 allowing the appeal and reinstated the defendant's counterclaim on the "direct claim".

4. There was afterwards a period of little or no action. On 29^th January 1997, the defendant took out a summons under Ord. 25 r. 1(4) and the court's inherent jurisdiction to dismiss the plaintiffs' action for want of prosecution. The summons came before Sears, J. on 28^th May 1997 who dismissed it, being of the opinion that there was no inordinate and inexcusable delay. From this judgment, the defendant appeals.

5. Before us, Mr. Huggins S. C., who appears with Mr. Paul Shieh for the defendant, confines his argument to two points: (1) there had been inordinate and inexcusable delay by the plaintiffs and (2) such delay has led to serious financial prejudice to the defendant. Instead of complaining that there had been a delay of 6 years commencing from the close of pleadings on 11^th April 1991 to the time of the dismissal of the summons by Sears, J. on 28^th May 1997, Mr. Huggins is content to say that there had only been a delay of 3 years and 7 months from 27^th July 1992 to 27^th February 1996 as set out in a useful chart which has been placed before us and the judge. What happened during this period? I will examine it by reference to the chronology.

24.7.92 Court of Appeal allowed appeal against Jones J's order striking out the counterclaim in so far as it related to the "indirect claim" and upheld the decision in respect of the "direct claim"

22.12.92 Master Evans granted leave to amend Defence and Counterclaim

15.1.93 Leave was granted to defendant to appeal to Privy Council re "direct claim"

11.2.93 Amended Defence and Counterclaim in reliance upon Court of Appeal decision

12.3.93 Amended Reply in reliance upon Court of Appeal decision

4.5.94 Covenant Mutual Insurance Company of Connecticut (one of D's re-insurers) declared involvent

18.7.94 Privy Council decision reinstating counterclaim in relation to "direct claim in tort"

1.8.94 Monat of Peterson & Ross invited defendant's insurers to settlement discussion

7.12.94 British National of England (re-insurer) went into liquidation

17.3.95 Application for security for costs

10.95 Start of without prejudice discussion

19.10.95 Master Jones ordered security for costs and action thereby stayed

7.12.95 Plaintiffs provided security for costs

27.2.96 Parties agreed to "standstill" (The "standstill" lasted for a period of 11 months until 29th January 1997 when the defendant took out the summons to strike out)

6. Mr. Huggins submits that he chooses this period because some of the re-insurers were going out of business causing serious financial prejudice to the defendant. He produces a chart which is an extract from the affidavit of

Andrew Michael Higgs showing the names and dates of the insurance companies going out of business, the percentage and amount of reinsurance and the defendant's loss which, he submits, comes to a total of US$1,712,079.00 on the basis that judgment would go against the defendant for US$5.8 million. In deference to Sears J's finding that the plaintiffs were entitled to wait for the outcome of the Privy Council appeal before taking the next step, Mr. Huggins argues that this was quite unnecessary and relies in particular on a letter dated 3rd August 1992 from the plaintiffs' solicitors to the defendant's solicitors. This letter reads:-

"In any event we see no reason why any proposed appeal to the Privy Council should delay the Ps' claim and it is our intention to continue with this action."

Other matters subsequent to the Privy Council appeal such as taxation and the application for security for costs are not good excuses for further delay, he says. Mr. Huggins concedes that he cannot in all probability argue that the delay would put a fair trial of the action at substantial risk as a result of faded memories or the unavailability of documents or witnesses. He acknowledges that if we uphold the judge on the issue that there had been no inordinate and inexcusable delay on the part of the plaintiffs, that would be the end of the matter. Even if we are not with the judge on this issue, he would still have to show that the delay has led to serious financial prejudice to the defendant.

7. The principles and practice governing the striking out of an action for want of prosecution are authoritatively stated in the House of Lords decision in Birkett v. James [1978] A.C. 297, which approved the decision of the Court of Appeal in Allen v. Sir Alfred McAlpine & Sons Ltd. [1968] 2 Q.B. 229. Lord Diplock said at p. 218:-

"The dismissal of those actions was upheld shortly after, in the three leading cases which were heard together and which, for brevity, I shall refer to as Allen v. McAlpine [1968] 2 Q.B. 229, the Court of Appeal laid down the principles on which the jurisdiction has been exercised ever since. Those principles are set out, in my view accurately, in the note to R.S.C., Ord. 25, r. 1 in the current Supreme Court Practice (1976). The power should be exercised only where the court is satisfied either (1) that the default has been intentional and contumelious, e.g. disobedience to a peremptory order of the court or conduct amounting to an abuse of the process of the court; or (2)(a) that there has been inordinate and inexcusable delay on the part of the plaintiff or his lawyers, and (b) that such delay will give rise to a substantial risk that it is not possible to have a fair trial of the issues in the action or is such as is likely to cause or have caused serious prejudice to the defendants either as between themselves and the plaintiff or between each other or between them and a third party.

In the instant appeal your Lordships are concerned with the application of principle (2) only. Contumelious default is not relied upon by the defendant."

We are in the same situation. Mr. Huggins seeks to draw support from Antcliffe v. Gloucester Health Authority [1992] 1 W.L.R. 1044. The facts from the head note are as follows:-

"In 1986 the plaintiff served the defendants with a writ claiming damages for medical negligence in respect of two operations that she underwent in 1981 and 1984. In July 1986 the defendants served their defence and requested further and better particulars of the claim. Such particulars were not served until September 1987 and nothing further was done on the plaintiff's behalf until in February 1991 she requested medical notes from the defendants. Until January 1990 claims against health authorities arising out of an employed doctor's negligence were met out of the funds of the doctor's medical defence organisation. Thereafter claims of less than (300,000.00, including costs, fell to be met by the health authorities themselves. The defendants took out a summons to have the plaintiff's action dismissed for want of prosecution under R.S.C., Ord. 25, r. 1. The judge (Schiemann J.), dismissing the defendants' appeal from an order by a district judge refusing to strike out the action, concluded that the plaintiff's delays in prosecuting the action had been inordinate and inexcusable, but that the defendants had suffered no prejudice as a result since the change introduced in 1990 for funding medical negligence claims, which would deprive the defendants of the right to recoup any damages awarded against them, was not a relevant matter.

On appeal by the defendants, it was held, allowing the appeal, that the plaintiff's inordinate and inexcusable delay in prosecuting her action had the result that the defendants' new insurance arrangements would apply to any sum of damages awarded against them; that those new arrangements would require the defendants to fund the whole of any such award without indemnity from any medical defence society; and that that prejudice to the defendants' financial interests constituted relevant prejudice to the defendants caused by the plaintiff's delay; and that, accordingly, the court would order that the action be struck out for want of prosecution."

The judgment of Scott L.J. at p. 1050 reads:-

"Mr. Baker has submitted that changes in insurance arrangements are not capable of constituting prejudice sufficient to support a striking out application. I am unable to accept that broad proposition. It seems to me inconsistent with what was said by Lord Griffiths in Department of Transport v. Chris Smaller (Transport) Ltd. I have in mind the passage, at p. 1209, which I have already cited. It seems to me undesirable and unnecessary to limit the circumstances that may constitute prejudice for the purpose of supporting a striking out application based on want of due prosecution of an action. If a plaintiff has been guilty of inexcusable and inordinate delay in prosecuting an action, and that is a premise from which consideration of prejudice must start, the plaintiff must take the defendant as he finds him. If the defendants, by reason of the delay, has been brought into a position in which he is prejudiced because of some feature of his business affairs or of his insurance arrangements, the prejudice should be taken into account. It does not seem right to me to seek to categorise some consequences of the delay as inappropriate to be taken into account. It seems to me, in agreement with the approach of Tudor-Evans J. in Gascoigne v. Haringey Health Authority, that the plaintiff's delay in prosecuting this action has, in a manner which could not have been foreseen by the plaintiff's advisers, prejudiced the defendants' financial interests. If the action succeeds in, say, 1993, the defendants themselves will have to fund the award of damages and costs. If the action had been brought to a reasonably expeditious conclusion in 1988 or 1989, an award of damages and costs in favour of the plaintiff would have been met from the funds of the relevant medical defence union. This seems to me to be clear prejudice caused by the inordinate and inexcusable delay which has prompted the striking out application."

8. At the end of Mr. Huggins' submissions, we invited Mr. Thomas S. C. who appears with Miss Rebecca Lee for the plaintiffs, to address us on the point of prejudice only. Mr. Thomas submits that inordinate and inexcusable delay is not enough to strike out a claim, serious prejudice has to be proved. The case of Antcliffe is important in the sense that both Mr. Huggins and Mr. Thomas seek to draw support from it, albeit for different purposes. Mr. Thomas distinguishes Antcliffe on the basis that in that case there was actual serious financial prejudice to the defendants. If the action had been brought to a reasonably expeditious conclusion in 1988 or 1989, an award of damages and costs in favour of the plaintiff would have been met from the funds of the relevant medical defence union and not the defendants. This is not so in the present appeal. From a chart produced by the defendant, the dates of the six re-insurers that went out of business are:-

The Insurance Corporation of Ireland Plc. Covenant Mutual British National Top International Republic Insurance 1976 Eagle

15.3.85 4.5.94 7.12.94 16.7.94 23.8.96 19.2.97

9. Mr. Thomas argues that the liquidation of these re-insurers is not linked to or caused by the plaintiffs' lawyers progressing slowly. There is no evidence or any finding from the judge as to when this complex trial will come on for hearing. The trial itself will take a long time, in the region of months rather than weeks or days. The issues are complicated involving Saudi Arabian law and engineering expert evidence. Discovery and inspection of 70 boxes of documents located in France, Germany, U.S.A. and Hong Kong will be time consuming. At the end of the trial, the judge will probably need time to go through the evidence, arguments and various documents before he delivers or hands down judgment. Then notice would have to be served on the re-insurers. In the circumstances, Mr. Thomas submits that there was no prospect of finishing the trial before February 1997 when the last of the six re-insurers, the Eagle collapsed. The serious financial prejudice is purely speculative. Moreover, it is unusual for the defendant to reinsure nearly 100% of its liabilities. The defendant has made a bad choice of re-insurers and can only have themselves to blame.

10. Having heard Mr. Thomas and Mr. Huggins in reply, I am not satisfied that a case of serious financial prejudice to the defendant has been made out even if I were to hold that the plaintiffs had been guilty of inordinate and inexcusable delay. I would dismiss the appeal with costs to the respondents/plaintiffs.

Nazareth VP:-

11. It was apparent at the outset that this appeal would fall to be decided by the answer to either or both of the following two questions. First, whether the rather more specific and shorter period relied upon before this Court constituted inordinate and inexcusable delay. And second, whether it resulted in financial prejudice as a result of the liquidation of six of the re-insurers.

12. The answer to the first question involved evidence and considerations of a far more diffuse nature than the answer to the second. It was this and also because it emerged in the course of Mr Huggins' submissions that the appeal was likely to fail upon the second question, that we invited Mr Thomas to reply only upon that second question, but of course upon the assumption that there had been inordinate and inexcusable delay (which he disputed). Mr Huggins had also, with commendable candour, informed us that if we were not prepared to accept that there was the financial prejudice he contended for, the appeal must fail.

13. As the outline of facts in the judgment of Wong J has shown, the liquidations of the six re-insurers occurred between 15 March 1985 and 19 February 1997. It therefore seemed to me that to succeed in his submission, Mr Huggins would have to show that the liquidations or at least one of them occurred after the plaintiff would have secured judgment and been indemnified to the extent concerned. This raised the difficult question of when the plaintiff would have obtained judgment had the delay relied upon not occurred. There was no direct evidence as to that and it is doubtful whether in the circumstances here there could be credible evidence or even opinions of when a final judgment could probably have been secured. Mr Huggins suggested this would be within 2½ years of the Privy Council decision on 19th July 1994, which, I suppose, possibly could have resulted in indemnification in the sum of $356,004 before the last of the six liquidations in question on 19th February 1997.

14. Mr Thomas for his part suggested that final judgment would not have been secured even by now given the enormous scale of discovery and consequently extended period of time implicit in the defendant's solicitors' estimate of their costs at $864,000 merely in respect of discovery, quite apart from other matters like resolution of the pleadings, evidence of Saudi Arabian law, engineering evidence, insolvency of the re-insurers, and the possibility of an appeal.

15. Mr Huggins accepted that if this Court required him to establish re-insurance loss upon the usual standard of the balance of probability, which he did not dispute must apply, then he would fail. He submitted that a claimant who had been pushed into such a situation by the inordinate and inexcusable delay of his opponent should not have to establish his financial loss to that high standard, which loss even if sustained, would be quite often incapable of proof to the usual standard.

16. He made no bones about the inability on the defendant's side to find any direct authority or precedent for such a course. Pressed to formulate a lesser standard that he thought might be acceptable, he was understandably unable to do so. He endeavoured to find some support in three authorities: Hayes v Bowman [1989]1 WLR 456; Doyle v Robinson [1994] PIQR P59; and Antcliffe v Gloucester Housing Authority [1992]1 WLR 1044. However, while they do perhaps indicate the difficulties defendants may have, I am not able to find anything in them that is of assistance to Mr Huggins. In all three cases, the existence or fact of financial prejudice was clear, and the causal nexus between the delay and the prejudice likewise plain or accepted. Here, the latter is plainly lacking altogether. In the latter regard, Mr Huggins sought to rely on the words "If a plaintiff has been guilty of inexcusable and inordinate delay in prosecuting an action ... the plaintiff must take the defendant as he finds him" in the judgment of Scott LJ at p.1050D of Antcliff's case. I find nothing in them to suggest that a lesser standard of proof of prejudice is permissible..

17. In my view, therefore, the appellant failed to show serious financial prejudice and the appeal had to be dismissed. There being no good reason why costs should not follow the event. I was satisfied that the plaintiffs should have their costs of the appeal.

Keith J.:-

18. At the conclusion of the hearing, I agreed with Nazareth V.-P. and Wong J. that the Defendant's appeal had to be dismissed with costs. I add a few words of my own only out of deference to Mr. Huggins' realistic and moderate submissions.

19. The only prejudice on which the Defendant relied for the purpose of the appeal was its inability to be indemnified in full against the Plaintiffs' claim. That inability arose because a number of the re-insurers with whom the Defendant had re-insured the risk it had assumed under the policy had gone into liquidation.

20. For my part, I believe that it is now settled law that the prejudice which is required to have been suffered by a defendant for an action to be dismissed for want of prosecution is not confined to prejudice affecting the actual conduct of the trial : see Department of Transport v. Chris Smaller (Transport) Ltd. [1989] 1 AC 1197 at p.1209E. I agree with the Court of Appeal in Antcliffe v. Gloucester Health Authority [1992] 1 WLR 1044 that a change in a defendant's insurance arrangements can amount to relevant prejudice for this purpose. But I agree entirely with Nazareth V.-P. (whose judgment I have read in draft) that if the liquidation of the Defendant's re-insurers is to be regarded as relevant prejudice in this case, judgment in the action would have to have been given before the liquidations took place. Otherwise, the nexus between the delay and the prejudice would not have been proved.

21. The liquidation of the Insurance Corporation of Ireland Plc is not relied upon for present purposes, because it occurred in 1985. For my part, I do not think that the Defendant has been able to prove that, but for the delay, judgment would have been given in the action before the liquidation of the other re-insurers. That applies even to the liquidation of 1976 Eagle Co. S.A. in February 1997. I agree with Nazareth V.-P. that neither principle nor authority justify a lesser standard of proof of prejudice than proof on a balance of probabilities. It is possible, I think, that, but for the delay, judgment in the action might have been given by February 1997, but it has not been proved to my satisfaction that that would probably have been the case.

22. Finally, I wish to add two points. First, although I have referred to the delay, it should not be thought that I regard the delay as having been inexcusable. It has not been necessary for me to reach a concluded view on that issue for the purpose of disposing of this appeal. Secondly, I have my doubts whether the particular financial prejudice which the Defendant alleges, even if it had been caused by inordinate and inexcusable delay on the part of the Plaintiffs, would have justified the dismissal of the action for want of prosecution. The Plaintiffs' claim is for US$5.8m. If judgment had been given for that sum, only US$1.7m. would have been recoverable by the Defendant from the re-insurers who had gone into liquidation. There is a powerful argument for saying that the appropriate order for the court to have made would not have been the dismissal of the whole of the action, but the dismissal of that part of the action which sought judgment in excess of US$4.1m. The wide language of Ord. 25 r. 1(5) of the Rules of the High Court suggests that that might be possible. I express no concluded view on the issue, however, because the issue was not fully argued before us, and in any event does not arise directly for decision.